SP Angel . Morning View . Tuesday 03 01 23
Copper prices climb despite lower China PMI numbers
MiFID II exempt information – see disclaimer below
Celsius Resources Ltd (ASX:CLA)* – Initial interim approvals for the development of the MCB copper/gold project in the Philippines.
Goldplat PLC (AIM:GDP) Suspended – Stock suspended pending publication of accounts
Rio Tinto PLC (LSE:RIO) – Changes to US Congress could help Resolution copper and Northmet nickel mines gain final approvals
Gold prices rally as dollar fails to lift off and soaring central bank buying
- Gold prices have strengthened again to $1,842/oz, their highest level in 6 months.
- The US Dollar has hovered at its 3-month lows, providing support to bullion priced in greenback.
- US 10-year yields have paused their rally following last week’s 40bp bounce, helping lift gold prices previously held down by more attractive Treasury returns.
- Global central bank gold buying took a significant step higher in the second half of this year.
- Q3 central bank buying rose to c. $20bn at 400t. Analysts question whether this was to take advantage of weaker prices or consider the move as a structural shift, with China and Russia likely taking advantage.
- Bloomberg reports Russia’s finance ministry doubled its holdings of gold alongside Chinese yuan since sanctions were triggered over Putin’s invasion of Ukraine.
Copper prices stagnant at higher levels as Chinese PMI data disappoints, and inventories remain buoyant
- Copper prices have failed to push past the $8,500/t mark, holding lower at $8,430/t.
- China PMI data highlights surging Covid cases and their implications on labour forces, with factory activity falling further into contraction.
- LME copper inventories fell 375t, however Shanghai stocks have risen as factories are hit by Covid implications.
BYD sales rise to 1.86m vehicles exceeding Tesla
- BYD sales rose 4% mom in December to 235,197 raising overall sales for the year to 1.86m (SCMP)
- This makes BYD the world’s largest EV manufacturer last year due to a late surge in sales.
- Nearly all BYD EV sales are into mainland China with prices of around US$15,000-30,000.
- BYD EVs use ‘Blade’ batteries with LFP chemistry.
- Lithium Iron (Fe), Phosphate batteries are cheaper, more stable and safer, but are heavier and offer lower range.
- Warren Buffett holds around 20% of BYD
Tesla deliveries disappoint in Q4 but production remains strong in boost to battery metals demand
- Tesla delivered 405,278 vehicles in Q4 2022, up from 308,600 vehicles in Q4 2021. Analysts had forecast 431k vehicles.
- Production outpaced deliveries for the second straight quarter, with vehicle production up to 439k vehicles.
- Production in 2022 grew to 1.37m vehicles, up 47%, whilst deliveries climbed by 40% to 1.31m vehicles.
- Tesla plans to run reduced production rates at its Shanghai plant this quarter, its stock price has fallen 65% over 2022.
Dow Jones Industrials -0.22% at 33,147
Nikkei 225 +0.00% at 26,094
HK Hang Seng +1.95% at 20,168
Shanghai Composite +0.88% at 3,087
Economics
China – Manufacturing sector conditions deteriorate in December with industrial PMI remaining in contractionary territory for the fifth consecutive month.
Caixin PMI / Markit PMI fell to 49.0 in December vs 49.4 in November amid Covid-19 containment measures.
- The index fell 0.4 points from the previous month.
- The official PMI survey fell to 47 in December, marking a near three-year low.
- New orders continued to slide while employment was still falling.
- “Supply contracted, total demand remained weak, overseas demand shrank, employment deteriorated, logistics was sluggish, manufacturers faced growing pressure on their profitability, and the quantity of purchases as well as inventories stayed low,” Caixin reported.
- “In the short term, infections are expected to explode, which will severely interfere with production and everyday life.”
- GDP rose 3% in the first nine-months of 2022 but may dip in Q4 due to the abandonment of President Xi’s strict zero-Covid policy
HK stock market closes >20,000 as investors bet on China reopening after Covid.
- While investors appear to be buying into HK on the relaxation of Covid regulations in China we are more wary of disruption to factories and logistics.
- The Chinese authorities appear to have decided to allow Covid to run rampant through their economy over Christmas and through the Lunar New Year.
- We suspect their reasoning is for the nation to catch and recover from Covid as fast as possible.
- While there is economic sense we also suspect disruption from short and longer term suffers of Covid in China will hit Q1 output and logistics.
Currency volatility to create interesting opportunities through 2023.
- Covid is likely to see greater than normal currency volatility despite the BoC peg
- Some observers are looking for the US dollar to fall and for the CNY to gain around 5%.
- We reckon the CNY will need substantial support due to falling exports and Covid disruption to factories and deliveries even as the US economy cools.
- China’s NDRC ‘National Development & Reform Commission’ is focussed on ensuring supply chains, food security and energy to stabilise inflation and create employment.
- The NDRC is also focusing on driving domestic demand (remember Dual Circulation) and helping critical investments (read property sector support)
Eurozone – Final Manufacturing PMI numbers confirmed the sixth consecutive sub-50 reading for December, although, the pace of contraction eased.
- The index came in at 47.8 last month, up on 47.1 in November and the highest in three months.
- Demand continued to struggle with new orders falling while employment continued to expand albeit at the slowest pace in 22 months.
- Outlook wise, firms are growing increasingly worried over potential deterioration in supply chains on the back of a pick up in Covid infection rates in China.
UK – Manufacturing sector contraction accelerate in December with the industrial PMI hitting a 31-month low, S&P Global data showed.
- The index dropped to 45.3 last month, down from 46.5 in November.
- Output, new orders and employment all fell at accelerated rate.
- “Clients are increasingly downbeat and reluctant to commit to new contracts, not just in the UK but also in key markets like the US, China and the EU… The weakness in the latter is still being exacerbated by the constraints of Brexit, as higher costs, administrative burdens and shipping delays encourage increasing numbers of clients to shun trade with the UK,” S&P Global commented on the data.
- On a more positive note, weaker demand saw inflation rate coming down to a near two-year low.
Separately, the FT released its annual survey results showing that a majority of 101 respondents among leading UK-based economists expect UK to face one of the worst recessions and weakest recoveries in the G7 in 2023.
- More than 4/5s expected the UK to lag its peers, with GDP already contracting and set to do so for much of 2023.
- The UK is reported to be unusually exposed to the global increase in gas prices and interest rates given a reliance on gas that is not matched by storage capacity and a high share of mortgages facing an expiry on fixed rate deals this year.
- Additionally, the UK is a standout in the extent to which workforce has shrunk since the pandemic adding to inflationary pressures and translating into tighter monetary policy for longer.
Economists expect significant fall in UK house prices if typical mortgage rates rise >5%
- “Adults should also try to stay home when unwell and if you do have to go out, wear a face covering.” Chief medical adviser at the UK Health Security Agency (UKHSA).
Turkey – Inflation slowed to 64.3%yoy in December on the back of easing cost of fuel and food.
- The pace of inflation pulled back for a second consecutive month after hitting 84.4%yoy, a 24-year high, in October.
- Inflation is likely to remain a problem ahead of presidential elections this summer as the central bank resists hiking rates while the government increases fiscal spending.
Energy – Wind and solar farms are lowering the cost of power production.
- Once the capital costs and interest are paid the power is for free less some maintenance costs – better still, much of the capital cost is spent domestically for wind power instillations.
- The move to renewables also serves to reduce our dependency and withhold funds from dangerous states, Russia, Iran etc…
- Broader distribution of power also reduces transmission losses creating better efficiency.
- EVs are hugely efficient at converting electrical power into distanced travelled and ongoing incremental gains are enhancing this further.
- In 10 years time we expect EVs to travel twice the distance on the same scale battery pack as a multitude of enhancements feed through.
- Unfortunately, while EVs work well for supermarket delivery vans, battery and hydrogen powered lorries are some way off meaning that diesel is with us for at least another decade.
- Surprisingly, the UK was a net exporter of electrical power in August to France when many of its nuclear reactors slowed down due to water drought and river water temperature issues.
Currencies
US$1.0545/eur vs 1.0662/eur last week. Yen 130.35/$ vs 131.82/$. SAr 17.048/$ vs 16.991/$. $1.193/gbp vs $1.206/gbp. 0.672/aud vs 0.679/aud. CNY 6.951/$ vs 6.951/$.
Dollar Index: 104.44 vs 103.85 yesterday.
Commodity News
Precious metals:
Gold US$1,842/oz vs US$1,817/oz last week
Gold ETFs 94.1moz vs US$94.1moz last week
Platinum US$1,092/oz vs US$1,054/oz last week
Palladium US$1,792/oz vs US$1,820/oz last week
Silver US$24.47/oz vs US$23.84/oz last week
Rhodium US$12,250/oz vs US$12,250/oz last week
Base metals:
Copper US$ 8,430/t vs US$8,393/t last week
Aluminium US$ 2,362/t vs US$2,416/t last week
Nickel US$ 30,986/t vs US$30,345/t last week
Zinc US$ 2,985/t vs US$3,036/t last week
Lead US$ 2,293/t vs US$2,248/t last week
Tin US$ 24,808/t vs US$24,100/t last week
Energy:
Oil US$86.16/bbl vs US$83.9/bbl last week
Natural Gas US$4.09/mmbtu vs US$4.53/mmbtu last week
Uranium UXC US$48.85/lb vs US$48.85/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$117.1/t vs US$115.1/t
Chinese steel rebar 25mm US$587.0/t vs US$581.0/t
Thermal coal (1st year forward cif ARA) US$225.0/t vs US$225.0/t
Thermal coal swap Australia FOB US$377.5/t vs US$379.0/t
Coking coal swap Australia FOB US$291.0/t vs US$275.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$101,822/t vs US$100,801/t
Lithium carbonate 99% (China) US$68,289/t vs US$73,538/t
China Spodumene Li2O 5%min CIF US$6,010/t vs US$6,010/t
Ferro-Manganese European Mn78% min US$1,317/t vs US$1,312/t
China Tungsten APT 88.5% FOB US$320/mtu vs US$320/mtu
China Graphite Flake -194 FOB US$880/t vs US$830/t
Europe Vanadium Pentoxide 98% 8.9/lb vs US$8.1/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$33.75/kg
China Ilmenite Concentrate TiO2 US$327/t vs US$325/t
Spot CO2 Emissions EUA Price US$90.1/t vs US$87.0/t
Brazil Potash CFR Granular Spot US$500.0/t vs US$510.0/t
Company News
Celsius Resources Ltd (ASX:CLA)* A$0.017, Mkt Cap A$24.1m – Initial interim approvals for the development of the MCB copper/gold project in the Philippines.
- In an announcement to the ASX today, Celsius Resources reports that it has received the interim approval of the Regional Mines and Geosciences Bureau in the Philippines for its Social Development & Management Programme (SDMP) and Care and Maintenance Programme (CMP) for the Maalinao-Caigutan Biyog (MCB) copper/gold project in Luzon.
- Approval of these plans is a pre-requisite for “the approval of the Declaration of Mining Project Feasibility and consequently, a Mineral Production and Sharing Agreement” (MPSA).
- The company explains that the SDMP “was developed in line with local development plans and Global Sustainable Development Goals” and that the ‘interim’ character of the approvals “indicate that the Company is not obliged to action on its commitments under the said programs until after the issuance of the Company’s MPSA”.
- As part of the Philippines mining legislative framework, the SDMP addresses the relationship between mine developments and their host communities with an emphasis on the development of human resources and the encouragement of local enterprises as well as infrastructure, educational and health provision.
- The CMP “details the Company’s safety and health, social, and environmental commitments as integral components of the MCB Project in cases of operational constraints (i.e. voluntary or involuntary stoppage)”.
- The December 2021 scoping study for the project envisages the US$253m development of a 314mt JORC compliant resource averaging 0.48% copper and 0.15g/t gold at the MCB project generating an after-tax NPV of US$464m over a 25-year mine life processing 2.28mtpa of ore from underground mining.
- The scoping study, which is based on a copper price of US$4/lb (US$8,818/t) and a gold price of US$1,695/oz, describes mining higher grades during the initial ten years of the operation with copper averaging 1.14% and gold averaging 0.54g/t helping to deliver a 2.7-year payback and an average C1 net cash cost of copper production of US$0.73/lb.
- Welcoming the approvals of the SDMP and CMP, director and Country Operations Director, Peter Hume, described them as “not only an indication of the national government’s firm commitment to the mining industry and the MCB Project as one of its key economic drivers post[1]pandemic, but also a clear manifestation of CLA’s strong resolve to advance the project and create real, purposeful, and ethical projects creating value for both the shareholders and stakeholders”.
Conclusion: The award of the SDMP and CMP approvals are welcome advances in the continuing permitting process for the development of the MCB project.
*SP Angel are acting as broker to Celsius Resources with respect to its AIM IPO.
Goldplat PLC (AIM:GDP) Suspended – Stock suspended pending publication of accounts
- Goldplat, along with a number of other smaller companies has had its stock suspended pending publication of its accounts.
- Management expect to now publish their 30 June 2022 accounts on 20 January this year.
Rio Tinto PLC (LSE:RIO) 5,892p, Mkt cap £98bn - Changes to US Congress could help Resolution copper and Northmet nickel mines gain final approvals
- Changes to personal roles within the US Congress may allow support for a number of critical material / copper and nickel mines to pass through.
- New Democrat and Arizona senators are seen supporting the stalled Resolution copper and Northmet nickel projects alongside strong Republican support
- It looks like Pete Stauber, a Minnesota Republican, will chair of the House Energy and Natural Resources Committee. Stuber is thought to be more supportive on mining.
- The former chair of the House Energy and Natural Resources Committee, Raul Grajalva, was opposed and manged to frustrate the development of base metals mining across the regions.
- Barasso, from Wyoming, also sounds supportive on Resolution and looks like the most likely candidate to chair the full natural resources committee.
- A number of federal agencies are also supportive of mining for strategic minerals in the US, particularly, Defense, Labor, Engery, etc.
- They need to overcome opposition from the EPA, Forest Service and Bureau of Land Management which have opposed virtually all mine development under the Biden administration.
- Opposition from local Native-Indian tribes also remains an issue.
- Resolution Copper is owned by a Rio Tinto, BHP joint venture while Northmet is held by Polymet Mining (PLM N).
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Analysts
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Sources of commodity prices
Gold, Platinum, Palladium, Silver - BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel - Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt - LME
Oil Brent - ICE
Natural Gas, Uranium, Iron Ore - NYMEX
Thermal Coal - Bloomberg OTC Composite
Coking Coal - SSY
RRE- Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite - Asian Metal
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